The Walk Shoe Company Operates a Chain of Shoe Stores. the Stores Sell Ten Different Styles

PROBLEM 8-2A_______________________________________________________________

The Walk Shoe Company operates a chain of shoe stores. The stores sell ten different styles of inexpensive men’s shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a manager who is paid a fixed salary. Individual salespeople receive a fixed salary and a sales commission. Walk is trying to determine the desirability of opening another store, which is expected to have the following revenue and cost relationships:

Per Pair

Unit Variable data

Selling price £30.00

Cost of shoes £19.50

Sales commissions 1.50

Total variable costs £21.00

Annual fixed costs

Rent £ 60,000

Salaries 200,000

Advertising 80,000

Other fixed costs 20,000

Total fixed costs £360,000

Required:

(Consider each question independently.)

1. What is the annual breakeven point in (a) units sold and (b) revenues?

2. If 35,000 units are sold, what will be the store’s operating income (loss)?

3. If sales commissions were discontinued for individual salespeople in favour of an £81,000 increase in fixed salaries, what would be the annual breakeven point in (a) units sold and (b) revenues?

4. Refer to the original data. If the store manager were paid £0.30 per unit sold in addition to his current fixed salary, what would be the annual breakeven point in (a) units sold and (b) revenues?

5. Refer to the original data. If the store manager were paid £0.30 per unit commission on each unit sold in excess of the breakeven point, what would be the store’s operating income if 50,000 units were sold? (This £0.30 is in addition to both the commission paid to the sales staff and the store manager’s fixed salary.)

PROBLEM 8-2A

Continued

Instructions:

1. Review the printed template called Problem 8-2 that follows these instructions. Most of the

problem data have been entered for you in the data input section of the spreadsheet.

Enter the amount where indicated.

2. There are 8 FORMULAS in the template that you need to provide to complete your analysis. Using the spaces provided below, write the formulas where requested in the template.

FORMULA 1 _________________ FORMULA 5 _________________

FORMULA 2 _________________ FORMULA 6 _________________

FORMULA 3 _________________ FORMULA 7 _________________

FORMULA 4 _________________ FORMULA 8 _________________

3. Click the Lotus or Excel icon from the program manager screen to start the spreadsheet program. Click on the Open File SmartIcon/Button to retrieve the template for the problem. Enter the missing amount in the appropriate cell on the template. Then enter the 8 FORMULAS where indicated on the template.

4. Click the Save File SmartIcon/Button to save your work.

5. Click the Print SmartIcon to display the Print dialog box. Click the OK button to print your work.

For Excel users, click the Print Button to print your work.